Introduction

In March 2021 we reported on the decision of the High Court in Original Beauty & others v G4K Fashion & others, finding infringement of UK and EU unregistered design rights in several of the Claimants’ “bodycon” style dresses. In the main proceedings, David Stone (sitting as Deputy Judge of the High Court) found that the flagrant nature of the infringement justified an award of additional damages. In a lengthy decision following a damages inquiry, the court made a substantial award totalling over £450,000, including an additional damages uplift of 200%. This article examines the complex facts and arguments considered by the court in reaching this landmark decision, and its implications for design-led businesses.

The facts

By way of re-cap, the Claimants’ luxury womenswear brand, House of CB, is known for its “bodycon” and “bandage” dresses which have been worn by celebrities such as Beyoncé and Jennifer Lopez. The Claimants claimed that the Defendants, trading as Oh Polly, had copied 20 of their designs. Seven of those were held to infringe the Claimants’ UK and EU unregistered design rights. Among the court’s findings was the fact that the Defendants had taken a “couldn’t care less” attitude to intellectual property rights by deliberately sending images of the Claimants’ products to their factories to be copied, which was sufficient to warrant an award of additional damages.

In the damages inquiry, the Claimants sought compensation in the form of lost profits on diverted sales, a reasonable royalty on the remaining sales, and an additional damages uplift.

The ruling

Standard damages

The decision contains a helpful summary of the relevant legal tests to be applied in the assessment of standard damages. These include the following key principles:

  • Damages are compensatory and should, as far as possible, aim to put the claimant in the same position as he would have been in, had the infringement not occurred;

  • The objective is not to punish the defendant;

  • The question of what proportion of the defendant’s sales would have been made by the claimant was for the court to determine; and

  • The ‘reasonable royalty’ is to be assessed as the royalty that a willing licensor and willing licensee would have agreed, using evidence of truly comparable licences (if any exist) as guidance, or otherwise on the basis of apportioning the “profit available” from the infringing sales.

The court acknowledged the difficulty of making a precise assessment, given the uncertainty of quantifying what would have happened in a hypothetical world in which the defendant had not infringed. However, David Stone accepted that the court’s role in those circumstances was to “do the best job it can with the material the parties have put forward before it [by] having regard to all the circumstances of the case and dealing with the matter broadly, with common sense and fairness”. He also acknowledged that not much could be expected by way of accuracy where the court was, essentially, being asked to “re-write history”.

Loss of profit

The lost profit calculation sought to determine the Claimants’ per-unit profit for each lost sale, based on a ‘probability’ or ‘P’ factor representing the likelihood that the sale in question would have been made by the Claimants had the Defendants’ infringing garment not been available.

Unsurprisingly, the value of ‘P’ was heavily debated. The court considered the nature of the parties’ respective businesses, the correlation between their relevant sales data and different price points, the overlap in their customer demographic, and the importance of the “trend” factor in customer behaviour. It ultimately reached the conclusion that the value of P was 0.2, meaning that 20% of the Defendants’ sales were sales that the Claimants “lost”. This resulted in an award of £74,847.92 in lost profits.

Reasonable royalty

On the question of a royalty on the remaining 80% of infringing sales, the court heard forensic accountancy evidence on the quantum of lost sales and ‘reasonable’ royalty rates. In his judgment, David Stone found the expert evidence unhelpful and emphasised that ‘it is for the court to assess the hypothetical negotiation between two willing parties in order to try to reach a reasonable royalty’. The court’s determination was complicated by the absence of any directly “comparable” licences and by evidence that the parties would never have reached agreement in a real-life negotiation. The judge considered multiple factors relating to the parties’ respective business models and pricing practices. He concluded that the parties would have calculated a royalty as a percentage of the Defendants’ net sales revenue at an above-average rate of 10%, subject to a minimum royalty of £4,000 per design – giving a total ‘reasonable royalty’ figure of £75,276.64. This reflected the importance and value to the Defendants of the ability to procure on-trend finished designs that had already been launched by a successful business, removing the need for design innovation and investment of their own.

Additional damages

The court then turned to the issue of additional damages. Recounting the principles set out in previous cases, it noted that additional damages could be punitive to have deterrent value. They had to be “effective, proportionate and dissuasive” but not so substantial as to be “egregious” or an abuse of power. They could be awarded even where standard damages had provided the claimant with effective relief.

However, David Stone noted the lack of useful guidance in case law on how to determine the quantum of additional damages, and concluded that there was no generally accepted or conventional approach to such awards. Considering the circumstances and nature of the infringing acts, the court revisited the findings in the main judgment that the Defendants had taken images of the Claimants’ garments and sent those to their factory to be copied – exhibiting a disregard for the Claimants’ design rights. Although the judgment does not expressly say so, the court is also likely to have been influenced by the fact that the Defendants’ evidence had included inaccurate sales figures attributed to under-reporting and “dishonest” witness evidence.

The court ultimately concluded that the sum of £300,000 in additional damages (representing an uplift of 200% on the standard damages) would be appropriate, considering the flagrancy and large scale of infringement, comprising 15,393 infringing garments sold over four years. The court also took into account the Defendants’ conduct in the proceedings, including their continuing denial of copying throughout the liability trial. Noting that the award of standard damages would still have left the Defendants with some of their gross profit, the court held that no lesser award would have achieved the objective of punishing the Defendants for what they done or deterring them from infringing again – they had to be left out of pocket.

Comment

The decision sounds a stark warning to any business contemplating the direct copying of a competitor’s products on the basis of a ‘calculated risk’ approach that assumes any award of damages would be relatively modest. The open-ended test of “effective, proportionate and dissuasive” additional damages – coupled with the precedent now set by this unusually large award – paves the way for judges to make similar awards in future cases where the defendant is seen as guilty of flagrant infringement on a large scale, even if (as was accepted in this case) the infringing activity may be insignificant in the context of the parties’ businesses as a whole.

Although it concerned unregistered design rights, the case has potential relevance for all IP rights. The court’s approach will therefore be welcomed by rights holders who are frequently targeted by flagrant ‘copycat’ infringers or lookalikes. It also serves as a reminder to litigants that their conduct during proceedings can have a significant impact on their potential liability for damages.

Judgment: Original Beauty Technology Co Ltd & others v G4K Fashion Limited & others [2021] EWHC 3439 (Ch)